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IU - BUS 202 - Study Guide - Midterm

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A202 Test 2 Study Guide

Key:

Master Budget = MB FC = Fixed Costs Flex Budget = FB AQ = Actual Quantity Actual Results = AB BQ = Budgeted Quantity PBT = Profit Before Taxes AP = Actual Price VC = Variable Costs BP = Budgeted Price

SQA = Standard Quantity Allowed EI or BI = End/Beginning Inventory

Master Budget (MB): Budg. Quantity x Budg. Price

Flex Budget (FB): Actual Quantity x Budg. Price

Actual Results (AB): Actual Quantity x Actual Price

Revenue and Spending Variance: FB-AB (actual results) on PBT line Activity Volume Variance: MB-FB on PBT line

Sales Price Variance: FB-AB on Rev line

Profit Variance: MB-AB on PBT line

Sales Volume Variance: MB-FB on PBT line

Fixed Cost Spending Variance: FB-AB on fixed costs

Cost of Special Order: (VC+FC+Opp Cost)/ Units on Spec. Order= Minimum price/unit

Budgeted Selling Price = Budgt. Rev/Units Sold

Budgeted Production = Sales + EI = Total Re – BI

DM Quantity Variance = (BQ [SQA] - AQ) x BP

DM Price/Rate Variance= (BP-AP) x AQ

SQA: AQ @ Bud. Assump. x BP

DM or DL

Quantity/Efficien

cy Variance

As If: AQ @ Act. Parameter x BP Actual: AQ @ Act. Parameter x AP

DM or DL

Rate/Price

Variance

Simple Rate of Return (SRR) = Annual Incremental NOI / Initial Investment

Annual Income NOI = Ann. Increm. Rev – Ann. Increm. Exp. – Ann. Deprec. Exp.

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Net Present Value (NPV): analyze cash flows, considers time value of money

How to Solve:

1.) Initial Investment (always given) * PV Factor (always 1 for initl inv.) 2.) Year 1-5 = Net Cash Flows (Rev- Oper. Exp)

3.) Net Cash Flows * PV Factor (Look up on Table based on Cost of Capital %) = PV

4.) Add up Year 1-5 and Subtract from Int. Inv. = NPV

IF Positive Accept

IF Zero Accept

IF Negative Do NOT accept

Payback Period = Int. Investment / Net. Op. Cash Flows

OR with tax Rate

1.) Net Cash Flows – Operations

2.) x (1-Tax Rate)

3.) = After Tax Net Cash Flows (A)

4.) Depreciation

5.) x Tax Rate

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7.) Total Net Cash Flows A + B